Your Money or Your Life Review
Second book that I review and I think that "Your Money or Your Life" is the right starting point for everyone who wants to become financially independent.
Some concepts explained in this book are fundamental whatever your financial situation and furthermore the practical examples and templates for analyzing your financial situation are explained really well
Make Peace with Your Financial Past
It's fascinating how our past financial experiences can shape our present and future relationship with money. Many of us tend to either underestimate or overestimate our financial history, and this can have a significant impact on our financial decisions moving forward. Understanding where we've been financially is indeed the first step toward achieving financial independence.
The key idea here is visualize your past earnings and calculating your net worth in order to to make peace with your financial past. It helps you gain clarity about your financial history and your relationship with money. For example, you might discover that you've had more financial support from others than you realized, or you've earned more than you thought.
Next, determine your net worth by creating a personal balance sheet that tracks your assets (liquid and fixed) and liabilities. Subtract your liabilities from your assets to find your net worth.
Calculate Your Real Hourly Wage and Track Your Money
The concept of calculating your real hourly wage and tracking your expenses is a powerful one. It emphasizes the idea that our time and energy are invaluable resources, and it's essential to make conscious choices about how we exchange them for money. By understanding the true cost of our work in terms of time and effort, we can make more informed financial decisions.
Time is a precious resource, and when we work, we're essentially trading our life energy for money. To transform your relationship with money, you should challenge assumptions about your earnings and spending. Calculate your real hourly wage by considering the time and money spent on your job. Account for adjustments like commuting time, work-related expenses, and even time spent on grooming for work.
Categorize Your Monthly Spending
Categorizing monthly spending is a practical approach to gaining control over your finances. It acknowledges that one-size-fits-all budgeting may not work for everyone and encourages a more personalized, nuanced understanding of your spending habits. By breaking down expenses into specific categories, you can identify areas where you may be overspending and make adjustments accordingly.
The author suggests, instead of traditional budgeting, focus on understanding how you spend your money. Categorize your monthly expenses in ways that make sense to you, considering your unique lifestyle.
Tracking specific subcategories can reveal surprising insights into your spending habits. For example, create subcategories for food expenses like "meals for guests" or "snacking."
The brilliant idea is to divide the money spent by your real hourly wage to understand how much life energy each subcategory costs, .
This reveals the true value of your spending decisions, making you more conscious of your choices.
Evaluate the Money Spent in Your Subcategories and Track Progress
The books encourages a deeper level of self-reflection about how you allocate your resources. Evaluating your spending in this way can lead to more meaningful financial decisions and a greater sense of fulfillment. This part of the book becomes more philosophical about your dreams and aspirations. I think everyone should analyze their expenses based on their needs. Furthermore, if an expense brings me nothing in the short term, but in the long term it is an added value, then it is difficult to analyze it at the moment based on the fulfillment it provides.
The book goes on introducing an essential element of accountability and visualization in the journey toward financial independence. Tracking progress through a wall chart is a tangible and motivational way to stay committed to your financial goals. It also highlights the value of sharing your journey with a supportive friend or family member.
Keeping track of your past helps you both to set achievable goals (which increases personal satisfaction) and to constantly improve and smooth out any small defects that remain.
Consciously Lower or Eliminate Your Expenses or Increase Your Income
We've reached the part that I like best to review "Your Money or Your Life". The concept of frugality, explored in this key idea, challenges modern consumer culture's "more is more" mentality. It highlights the wisdom of enjoying what you have and making mindful spending choices. This approach not only supports financial independence but also promotes sustainability and conscious consumption.
The author on the opposite encourages to challenge the traditional notion of a 40-hour workweek and encourages individuals to reassess the value of their life energy. It emphasizes that the purpose of work is not just to put in hours but to achieve a fair exchange for the energy expended. The concept of seeking higher pay in line with your health and integrity is a powerful motivator for pursuing Financial Independence.
It encourages questioning whether the energy you invest in your job is a fair exchange for what you receive. Increasing your income is not just about wanting more money but working toward a sustainable future. Increasing income may require working more hours temporarily, but it can be motivating when aligned with your goals.
Research and Choose Your Investment Options to Earn Income from Your Investments to Achieve Financial Independence
The book puts on the table the idea of earning income from investments to achieve Financial Independence. It highlights that early retirement is achievable for more people than previously thought, thanks to the FIRE movement.
What is FIRE movement?
The FIRE movement, or Financial Independence Retire Early, challenges the notion that early retirement is only for the privileged. FIRE proponents emphasize the wisdom of investing savings to generate passive income. Monthly investment income includes returns on investments like interest, dividends, rental income, or business profits.
The author suggests to calculate your monthly investment income by multiplying your capital by the current long-term interest rate., but we know that there are other ways decorrelated with the interest rates.
You can do all of this taking control of your investments and avoiding unnecessary fees. It encourages individuals to become knowledgeable about long-term, income-producing investing and make informed decisions. Index funds are highlighted as a popular and low-cost investment option for those pursuing Financial Independence.
"Your Money or Your Life" Review Vote
“Your Money or Your Life” is a fantastic book for anyone who wants to get on the path to financial freedom. What makes it so special? Well, first of all, it makes you look at money in a completely different way.
Imagine being able to calculate how much your time and energy is really worth. This book tries to teach you how to do that. It makes you think about how much work it costs you to buy the things you want and pushes you to consider whether it's really worth it.
But it's not just theory: in the book there are practical examples and templates to use for each of the steps expressed in the book. This plan is very clear and suitable even for those who have never given much importance to money.
In short, "Your Money or Your Life" is an excellent starting point that helps you change your relationship with money. If you want to start managing your finances better and work towards a financially free future, this book is a must-read.
I recommend it as your first book.
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